« When Interior Secretaries Attack! | Main | Julian Sanchez and Paul Krugman Think About Wal-Mart »

December 19, 2005

Are Workers' Wages and Salaries Stagnating?

Macroblog writes:

Are Workers Losing Ground? : Steve Reardon thinks so: "This is another problem for the Bush Administration. Since the start of 2005 the real wage rate has been declining and in the last two months the real wage has dipped below its November 2001 level. In other words, the real wage (the hourly wage put out by the BLS adjusted for inflation) is lower now than it was 4 years ago."...

[But] very president since Gerald Ford ends up looking pretty bad, the exception being the Clinton administration -- but only during the second term. (In the first four years of the Clinton administration, real average weekly earnings rose by about 4 cents. In the first four years of the current administration, they increased by about 17 cents.)

What's going on here? I'd argue the problem is that hourly wages or earnings are an inadequate measure of labor compensation, primarily because they exclude nonwage forms of compensation -- health care benefits, employers' share of social security contributions, and the like. These forms of compensation are an increasingly important part of what workers receive from employers in exchange for the sweat of their brows...

Two points: First, from 1973-1995 the rate of productivity growth in the American economy was very low--roughly 1% per year--and so we would expect real wage growth to be low. Since 2000 the rate of productivity growth has been 3.5% per year--and we would expect real wage growth to be much higher. It hasn't.

Second, as best we can tell (and we can't tell very well) the distribution of benefits is much more unequal than the distribution of wages. The rate of growth of average compensation is probably doing much better than the rate of growth of average wages and salaries; the rate of growth of median compensation is probably about on a par with the rate of growth of median wages and salaries.

There is reason to be worried about this apparent stagnation of real wages since the last business cycle peak.

Posted by DeLong at December 19, 2005 12:19 PM